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September 11, 2023

Suspicion vs. Procedure: The Case of KPM Enterprises vs. GST Authorities

Suspicion vs. Procedure: The Case of KPM Enterprises vs. GST Authorities


In the case of “KPM Enterprises vs. The Commissioner of Delhi, Goods and Service Tax & Others,” we delve into a curious legal dispute where the GST registration of KPM Enterprises was abruptly canceled by the state authorities, without prior notice or proper procedure, based solely on suspicion. This case challenges the balance between administrative actions and the rights of registered taxpayers.

Facts of the Case:

KPM Enterprises, the petitioner in this case, has challenged an order dated 02/11/22, issued by the state tax department, which resulted in the cancellation of their GST registration, effective from 09/11/2022. The department had earlier suspended their registration on 27/9/22, following the issuance of a show-cause notice. KPM Enterprises had been a registered GST taxpayer since 09/09/22.

The petitioner, KPM Enterprises, was engaged in the trade of betel nuts and had placed an order with a supplier, M/s. G.G. Agencies, located in Karnataka. The order included 350 bags of areca nuts, weighing a total of 24,500 kgs, with a total value of Rs. 72,03,000/-, which included a taxable value of Rs. 68,60,000/- and IGST of Rs. 3,43,000/-. These goods were seized by Assistant Commissioner –II, Circle F, Jaipur, at Bhagru Ajmer Road, Jaipur, due to the suspicion surrounding them. However, the reasons for this suspicion remained unclear, leading to a legal challenge by KPM Enterprises in the High Court of Rajasthan.

The Jaipur-based officer later visited Delhi and, with assistance from the local department, conducted an inspection at KPM Enterprises’ premises on 27/09/22. According to the officer’s report (GSTRG-30), the premises were found nonfunctional. Importantly, the officer did not upload this report or any photographs as required by law, and KPM Enterprises was not informed of this visit.

Subsequently, a disputed show-cause notice was served to KPM Enterprises, leading to the suspension and eventual cancellation of their GST registration, citing nonfunctional premises as the reason, without any corresponding demand being raised.

KPM Enterprises argued that this action violated Rule 25 of the CGST Rules 2017, which required proper officers to inform the premises’ owner before an inspection, take photographs, and upload them within 15 working days.


The primary issue at hand is whether a proper officer can suspend or cancel a valid GST registration based solely on suspicion without following due procedure.


The petitioner argued that the inspection was conducted in violation of Rule 25 of the 2017 rules, as they were not given an opportunity to be present at their premises, and the department did not follow the prescribed procedure of taking and uploading photographs.

The department acknowledged the procedural lapse but suggested that the petitioner would be given an opportunity to present their case.

Observation and Judgment:

The court found that the disputed show-cause notice could not be sustained. The inspection of the premises did not comply with Rule 25 of 2017, as no photographs were taken, and the petitioner was not informed. The court allowed the writ application, setting aside the disputed notice and order.

The department was granted the liberty to reexamine the place of business, ensuring that the petitioner had the opportunity to present their side in accordance with the law. All rights and contentions of both parties were reserved.


This case underscores the importance of adhering to proper procedure and ensuring the rights of taxpayers are upheld, even when suspicions arise. The court’s decision considered the department’s procedural missteps, including failing to inform KPM Enterprises during the inspection and neglecting to capture and upload photographs as required by law. Ultimately, the writ was rightly allowed, granting the department a fresh opportunity to investigate the premises while respecting due process and taxpayer rights.

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